Perspective is a funny thing. The full taxpayer cost of the S&L bailout came to an enormous, inflation-adjusted tab of around $255-billion; and yet, in the shadow of the latest spate of bank bailout checks written by Congress, that doesn’t seem like much. Similarly, the $60-billion Madoff fiasco tends to make the many Ponzi scheme busts that followed seem quaint by comparison, including the $7-billion scam allegedly carried out by Robert Allen Stanford’s firm.

Just to make sure everybody agrees that $7-billion is a lot of money – keep in mind it exceeds the GNP of 40% of the nations on earth. Imagine putting a match to all the goods and services produced in one year by the people of Laos or Mongolia. Stanford is accused of doing that, and more. But because it’s just a tenth of the wealth destroyed by Madoff, Stanford may forever be regarded a Ponzi also-ran.

But dig a little deeper and you’ll find the Stanford case is the bigger outrage by far, not so much for the scam itself, but for the shocking behavior of the regulators tasked with preventing it. Where Madoff was enabled by SEC bureaucratic incompetence, Stanford was empowered by overt SEC indifference.

That’s right – indifference. Unlike Meghan Cheung, the former head of enforcement at the SEC’s New York branch, who didn’t know how to determine whether Madoff was running a Ponzi scheme, her counterpart in Fort Worth spent years swimming in evidence of Stanford’s scam, but simply preferred not to do anything about it.

The evidence, if you can stomach it, is oozing out of the report recently submitted by SEC Inspector General extraordinaire David Kotz. In it, we learn that SEC examiners spotted the red flags as early as 1997, and spent eight years lobbying then-chief of Fort Worth’s enforcement division, Spencer Barasch, to investigate. Barasch repeatedly declined, even as evidence of the Stanford scam – together with the size of the scam itself – grew exponentially.

The first referral by SEC examiners was sent to Barasch in 1998. According to the testimony of Julie Preuitt, who helped author the request, Barasch declined to investigate after discussing the matter with Stanford’s legal counsel at the time, former SEC Fort Worth District Administrator Wayne Secore.

According to the report:

Barasch told Preuitt “he asked Wayne Secore if there was a case there and Wayne Secore said that there wasn’t. So he was satisfied with that and decided not to pursue it further.”

Obviously, Barasch denies this, and such a claim would be difficult to believe were it not for the well-documented facts that follow.

Barasch finally left the SEC for a spot as partner in the law firm of Andrews Kurth in 2005, shortly after putting the kibosh on a third attempt by SEC examiners to investigate Stanford. Barasch’s replacement accepted a similar recommendation later that year, but the resulting inquiry was mismanaged and did not produce an enforcement case until February 2009, after the Commission’s hand was forced by Madoff’s admission two months earlier.

But it was what happened after Barasch’s departure from the SEC that casts his earlier actions in a much harsher light. As the investigation discovered:

[Barasch], who played a significant role in multiple decisions over the years to quash investigations of Stanford, sought to represent Stanford on three separate occasions after he left the Commission, and in fact represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so.

The final of Barasch’s three attempts to represent Stanford was by far the most brazen, not to mention instructive. It happened in February 2009, immediately after the SEC filed suit against Stanford. Like the two before it, the third was also denied. When asked to justify the renewed request, Barasch replied,

“Every lawyer in Texas and beyond is going to get rich over this case. Okay? And I hated being on the sidelines.”

In email, veritas.

Not only was Barasch apparently numb to the definition of “ethical conflict,” he seems to have used it as a business development tool, at least that’s the impression left by an email not included in the Kotz report but acquired by the Dallas Morning News. According to the email, after Mark Cuban was sued by the SEC’s Fort Worth office for insider trading in 2008, Barasch told an associate of Cuban’s,

“I am friends with and helped promote two of the guys who signed the Complaint against Mark. Someone should tell Mark to look at my profile on my firm website, my SEC press releases, and advise Mark to add me to his defense team.”

It’s safe to say that Barasch plays the heavy in the IG’s report, but read it carefully, and you’ll find that he’s not the real villain. Instead, that role is played subtly but consistently by the broader SEC Enforcement Division’s flawed culture.

As the report stated,

We found that the Fort Worth Enforcement program’s decisions not to undertake a full and thorough investigation of Stanford were due, at least in part, to Enforcement’s perception that the Stanford case was difficult, novel and not the type favored by the Commission. The former head of the Fort Worth office told the OIG that regional offices were “heavily judged” by the number of cases they brought and that it was very important for the Fort Worth office to bring a high number of cases…The former head of the Examination program in Fort Worth testified that Enforcement leadership in Fort Worth “was pretty upfront” with the Enforcement staff about the pressure to produce numbers and communicated to the Enforcement staff, “I want numbers. I want these things done quick.” He also testified that this pressure for numbers incentivized the Enforcement staff to focus on “easier cases” – “quick hits.”

And these instructions were predictably manifest in the handling of the Stanford case, as evidenced by the reaction to an anonymous Stanford insider’s letter, first sent to the NASD, denouncing Stanford as a Ponzi scheme. The letter was forwarded to the SEC where Barasch saw and ignored it, saying,

“Rather than spend a lot of resources on something that could end up being something that we could not bring, the decision was made to not go forward at that time, or at least to not spend the significant resources and wait and see if something else would come up.”

The report also cites a former Fort Worth office administrator who says Barasch and others in his group had been subjected to criticism from high-level SEC staff in Washington DC for “bringing too many Temporary Restraining Order, Ponzi, and prime bank cases.”

Now, let’s take a step back to see what insights into the SEC’s enforcement paradigm might be gleaned from what we’ve learned so far.

Given his actions both prior to and after leaving the Commission, I suspect Spencer Barasch’s approach to regulating Stanford – and presumably other entities – was heavily influenced by a desire to maximize his eventual private sector opportunities. This is further evidence that the significance of regulatory capture and the revolving door ethic in the minds of SEC enforcement officials cannot be overstated.

Whereas “Ponzi and prime bank cases” most often apply to investing institutions, while accounting fraud charges are most often leveled against public companies, I suspect the high-level mandate to prefer the latter over the former to be the root of the SEC’s long-suspected anti-issuer/pro-institutional investor bias – or at the very least, further evidence of it.

This apparent anti-issuer bias, paired with the report’s well-documented evidence of the SEC’s preference of case quantity over quality, offers additional support for the widely-held belief that cases against public companies are seen as low-hanging (and career-protecting) fruit in the eyes of Enforcement Division staffers.

If my conclusions are correct, then the Stanford outrage is not really about Spencer Barasch, but the SEC’s flawed enforcement culture, from Washington DC on down. I further suspect this culture to be a key factor in explaining the SEC’s role as enabler of the stock manipulation schemes extensively documented here on Deep Capture.

But don’t take my word for it. Instead, consider the words of then-Director of the SEC’s Division of Enforcement, Linda Chatman Thomsen, responding to a question posed by a member of the audience following her keynote address at the US Chamber of Commerce’s 2008 Capital Markets Summit.

Audience member: “You spent a lot of time talking about insider trading and penny stock fraud, but you failed to mention an issue that’s of great concern to the Chamber, and that is naked short selling and the unsettled trades that can result from that. How can the Commission claim that it is serious about enforcement when millions of trades fail to settle every day and companies remain on Reg SHO Threshold Lists for years and years?”

Thomsen: “As to naked short selling, and more generally market manipulation generally, it is an area we are focused on. We have seen fewer cases in that arena because, often times, this is not necessarily with respect to naked shorts, but shorting or market manipulation more generally, because often the components of something that might look to be manipulative are all legal trades as you point out. So it’s a hard case to bring, which is not to say that it isn’t something that we don’t investigate, because we do. So I hear and understand the frustration of many on the subject of short selling generally. When we hear complaints about short selling—and, frankly, it is both short and naked short, it is a combination of both—we routinely hear from companies who’ve come in, who worry that they’re being shorted in an illegal way. We routinely take all that information in and look into it.

“And often times, as I think many defense counsel would be happy to tell you, when we dig in, what we find is that some of the information that has caused people to be shorting is actually true as to the company, and we may very well be confronted with two issues, one on the company and its disclosure side as well as on the trading side. But they’re very difficult cases, which is not to say that we aren’t focused on them and interested in them and indeed this new focus that we have on some smaller companies and smaller issuers will wrap some of those concerns into their focus as well.”

Thomsen’s answer needs to be examined from two angles: what she said and what she (meaning, her division) actually did.

What Thomsen said, was that when it comes to illegal, manipulative naked short selling, “it’s a hard case to bring,” and that it often it turns out the targeted company deserved to have its stock manipulated. But don’t worry…the SEC Division of Enforcement cares and regularly investigates complaints of illegal, manipulative short selling.

What Thomsen’s division actually did was quite different. We know this thanks to another outstanding report by SEC Inspector General David Kotz relating to the Commission’s handling of complaints of illegal, manipulative naked short selling between January 2007 and June 2008. What Kotz discovered was that of the more than 5,000 complaints received by the Division of Enforcement during that time, not one resulted in an investigation.

Kotz further found that while robust methods exist for dealing with complaints relating to “spam driven manipulations, unregistered online offerings and insider trading” (again, infractions typically committed by issuers), no written policies existed for dealing with complaints of illegal naked short selling. This “[has] the effect of naked short selling complaints being treated differently than other types of complaints.”

And in this case, “differently” meant “not at all.” This attitude closely mirrors that of the SEC’s Division of Enforcement as described in the Stanford report.

In my opinion, the best thing to happen to the SEC in many years is the arrival of Inspector General David Kotz. The second best thing is the February 2009 departure of Linda Thomsen. In the months following the arrival of Thomsen’s successor, Robert Khuzami, many encouraging developments have been observed, including two enforcement cases brought against manipulative naked short sellers, the permanent adoption of regulations greatly reducing instances of such manipulation, and the recent case brought against Goldman Sachs (NYSE:GS). Each of these represents an important departure from the SEC’s long-standing anti-issuer/pro-bank approach to regulation.

These positive developments notwithstanding, the dysfunctional culture at the SEC’s Division of Enforcement was undoubtedly a long time in the making. As a result, it will require a long time to root out. Unfortunately, we don’t have a long time. Investor confidence in the fundamental fairness of our capital markets must be restored now, not as long as it takes the old guard’s institutional memory to fade away. Having read the Stanford report, the only practical solution I see is a new beginning. Congress needs to sunset the SEC on an immovable — and ideally not too distant — date certain and instruct the Department of Justice to have a replacement ready to begin work the next day.

The next best solution would be to disband the SEC entirely, and send big, red warning letters to all potential market participants, giving them fair warning that they’re on their own.

These may seem like desperate measures, but I suspect you’ll agree these are becoming increasingly desperate times.

83 Responses to “The SEC and its culture of regulatory capture”

Congratulations to Dendreon on their FDA approval of Provenge and especially to the DeepCapture crew that played an integral role in exposing the corruption of the FDA approval process which played a significant role in the approval!

Jim Hall,
What happens in the legal system when you sue either the SEC or the abusive naked short sellers is what acts as an inducement to perpetrate these frauds. There is all reward and no risk. The SEC has what’s referred to as a “discretionary function exception” derived from the Federal Tort Claims Act. They have no “mandate” to investigate these crimes. Thus you see the statistics that Judd cited in which the SEC’s Office of Inspector General’s audit No. 450 disclosed that after receiving over 5,000 formal complaints involving abusive naked short selling not one led to an SEC “enforcement action”.

When you sue the DTCC and NSCC for administering a totally corrupt “Automated Stock borrow Program” (SBP) the SEC comes along and files an amicus curiae (friend of the court) brief citing that the SEC did approve of the concept of an SBP a gazillion years ago even though it has morphed into the prime facilitator for these frauds. Securities crimes like insider trading do not support the “revolving door” from the SEC to Wall Street. It is abusive short selling crimes and the ability of the SEC to use their “discretion” NOT to investigate these crimes that greases that door.

When you sue the abusive clearing firms they correctly claim that they have no specific duty to the buyer of undelivered shares. When you sue the buyer’s brokerage firm they correctly assert that they had no knowledge that there even was a delivery failure. There is a circle of “plausible deniability” in the legal system that provides no deterrence to these crimes and therefore the green light to selling nonexistent shares all day long to unsuspecting U.S. investors after targeting for destruction U.S. development stage corporations deemed to be an “easy prey”.

We need share data. It’s easy to know the total float — that’s just the total number the transfer agent shows in “street name” (Cede & Co.), right? (All other shares are certificates in the name of holders, right?)

The DTC/DTCC knows all the total shares showing in their participants long and short positions, right? What else is needed to determine the imbalance, that is, the FTD’s that might be there?

I have seen postings that claim we also need x-clearing and offshore numbers as well. I don’t understand that. Foreign brokers go through the DTC too, right? Our markets are all under the DTC. They have net long/short positions with the DTC. Right? Why does ex-clearing matter if we are looking at the total long/short across all DTC participant accounts? What is missing? I do understand what ex-clearing is and what foreign markets are. But in the end these result in credits or debits on participant account statements in the “shares held long” or “short positions”.

Who can explain if this information is not sufficient to determine the total FTD’s.

After 29 years of writing on and researching abusive short selling this is the model that most securities lawyers find the easiest to understand. As a reference, the A zone is composed of paper-certificated shares held in “street name” at the DTC subdivision of the DTCC. It matches exactly the shares referenced in the NSCC “participants shares accounts”. The C zone represents shares held in a paper-certificated format by investors plus those held in a “DRS” format at a transfer agent. All of the chicanery occurs in the B zone and in “tunnel” leading from the A zone into the B zone. Fred, I hope this doesn’t “muddify” your current understanding. From Book #9:

THE HIGHLY SECRETIVE METAPHORICAL “B ZONE”

The B zone is the hiding place for the “security entitlements” issued during each SBP post-FTD “faux-borrow”, during each otherwise “legal” pre-borrow and each and every yet to be bought in failure to deliver or FTD.

SUBZONE B-1

Subzone B-1 houses all of the “security entitlements” issued during SBP post-FTD “faux borrows”. It is also known as the “C” sub accounts of the NSCC. A question arises, shouldn’t the failure to deliver on the previously contracted for “settlement date” result in a misbehavior deterring penalty instead of the 3 rewards (the “trifecta”) associated with issuing a share price depressing security entitlement, hiding the evidence of the fraud and refusing to do anything about the fraud after its discovery?

Do you recall how the NSCC will share with management teams the contents of zone A where the accounting always looks perfect via an “SPR” or “securities position report”? Although the NSCC management has full visibility of the contents of these “C” sub accounts comprising zone B-1 they refuse to share that with either the investing public or with management even after management suspects something is amiss and orders the “SPR”. This intentional misrepresentation is a form of a “cover-up fraud” expressly forbidden by Rule 10b-5. That’s why U.S. investors are relegated to be buying a “pig in a poke” when they buy shares of any U.S. corporation.
When concerned management teams order an expensive SPR report they are given a “misrepresentation” that everything at the NSCC is just fine and that there is no naked short position. At over $2,000 apiece victimized corporations have spent a lot of money to get misrepresented. Parties in cover up mode have to act like this; they have no choice. Do you recall how Rule 10b-5 deemed it illegal: To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or … in connection with the purchase or sale of any security.

Note that during the (theoretical but not actual) “curing” of the 2 million share FTD cited above the “supply” variable of that which is readily sellable within that corporation’s share structure whether they be registered shares or unregistered “security entitlements” went up appreciably and therefore the share price dropped appreciably. The establishment of the naked short position by refusing to deliver that which was sold was immediately monetized just due to the nature of how the negative bet against the corporation was placed i.e. the method of placing the bet by refusing to deliver that which was sold induced the issuance of share price depressing “security entitlements” that gave monetary value to the naked short position simultaneously being established. That’s a pretty good start to an investment. This one “refusal” to deliver not only established the naked short position but also gave it monetary value due to the NSCC’s SBP.

What’s really interesting is that as their new “legal owner” clearing firm G has all of the right in the world to “re-donate” the already once “borrowed” shares originally bought by client F-1 and F-2 right back into that same SBP lending pool as if they never left in the first place. But wait a minute, who says that F-1 and F-2 were the original buyers of those particular parcels of shares? Maybe F-1 was buyer #28 of his parcel and F-2 was buyer # 36 of his particular impossible to identify parcel. Soon clients F-1 and F-2 as well as clients G-1 and G-2 might “co-beneficially own” the 2 million shares they bought with a couple of dozen other investors. But due to “anonymous pooling” and the “continuous” in “Continuous Net Settlement” (“CNS”) system i.e. no audits allowed they’ll never be able to learn of this fact but they might suspect something is amiss as the share price constantly drops as the volume reports that the entire “float” gets turned over on a daily basis.

SUBZONE B-2

This metaphorical subzone is where the share price depressing “security entitlements” resulting from “ex-clearing arrangements” are stored within a corporation’s share structure. This corporate toxic waste is also invisible to all prospective investors, to the corporation’s management team and even to the NSCC as these trades were intentionally routed away from (“ex-“ meaning outside of) the NSCC clearing system or “Continuous Net Settlement” (CNS) system usually for nefarious reasons. Although the DTCC is the national system set up to accomplish the “prompt and accurate settlement” of all securities transactions as per Section 17 A of the ’34 Exchange Act Wall Street is not forced to clear and settle their trades exclusively through the DTCC.

“Ex-clearing” arrangements basically involve one corrupt clearing firm “pairing off” with another corrupt clearing firm and mutually agreeing not to buy-in each other’s delivery failures. In that sense it’s basically a little NSCC outside of the big NSCC. This is tantamount to one corrupt clearing firm telling the other your clients can sell nonexistent shares to my clients all day long if my clients can do the same to your clients. Under the bus go all of the clients and the monetary value of the failed delivery obligations are simply collateralized in a daily marked to market fashion off to the side and all of the U.S. corporations whose shares are involved are severely damaged by dilution because of all of the readily sellable “security entitlements” issued and invisibly piling up in their share structures.

Note that these “arrangements” are 180-degrees antipodal to the congressional mandate to “promptly and accurately settle” all securities transactions as “settlement” necessitating the “good form delivery” of that which was thought to be being purchased is illegally being intentionally circumvented. The above example represents bilateral “pairing off”. Even more damaging is multi-lateral “pairing off” where groups of clearing firms can merely agree to mark each other’s failed delivery obligations to market on a daily basis. The NSCC and their SBP represent a multi-lateral “pairing off” facility in three dimensions.

The NSCC management can always posit that it had no idea that its “participants” were misbehaving like this outside of the DTCC. The problem is that the NSCC acting as an SRO or “self-regulatory organization” has the mandate to monitor the “business conduct” of its participants as it relates to our securities markets no matter where the misbehavior occurs.

SUBZONE B-3

This is comprised of the “security entitlements” issued due to “broker/dealer internalization” or “desking”. This occurs when a trading desk exercises its “first dibs” option and naked short sells into the buy order of its own client or that of an “introducing” or “correspondent” broker. The bulk of these activities are often associated with the larger market makers that have a superior visibility of buy orders.

SUBZONE B-4

The “security entitlements” stored here are a result of the normal “pre-borrow” process associated with otherwise “legal” short selling. The criminality occurs when co-conspiring firms act in concert and target corporations for bankruptcy and share the identity of the corporations targeted for destruction with others.

SUBZONE B-5

These “security entitlements” are associated with FTDs held offshore and outside of the DTCC that are nevertheless allowed to interface with our NSCC. Offshore criminals want to gain access to the NSCC’s SBP, its curing and hiding of FTDs and the NSCC’s pretending to be “powerless” to buy-in FTDs.

SUBZONE B-6

These “security entitlements” are associated with abusive options market maker activities. There is a vast variety of abusive options market maker frauds that are perpetrated in concert with abusive short sellers. Many involve the use of “derivatives” and the clever creation of “synthetic long positions” which give rise to subzone B-6 “bullets”. Options MMs that sell “puts” can make the case that they need to hedge their positions by short selling the underlying security. Market reform advocates have a tough time watching “derivatives” of legitimate shares in the hands of those with no economic interest in a corporation forcing the share price of the underlying equity downwards in a “tail wagging the dog” fashion.

Each and every “security entitlement” stored in zone B represent another layer of “snow” on the corporate roof only needing a “triggering” event to convert its negative potential energy into damaging kinetic energy. All of these “security entitlements” causes share price depression because of their contribution to an inflated “supply” variable. Each one exists above and beyond the number of shares already “outstanding” in the share structure of a corporation. All of them contribute to the “float” of readily sellable securities that comprises the “supply” variable. “Security entitlements” hidden in the B zone are sometimes referred to as “bullets” that have already penetrated and done damage to the corporations targeted for an attack. Think of buy-ins as tourniquets to stop the bleeding.

The number you want to discern is the disparity between all shares that have a paper-certificate to justify its existence and the # of “securities held long” by all purchasers and holders of these “securities” i.e. the current “net naked short position” or “unaddressed delivery failures”.

These “open positions” are held all over the place on Wall Street. No one “securities intermediary” can hit a computer button that will kick out this number. When I do a share census by canvassing the larger shareholders in heavily naked short sold securities as referenced on their monthly brokerage statements oftentimes 20% of the shareholder base will “own” 100% of the shares “outstanding”. I did one recently in which 22 shareholders of about 450 “owned” 128% of the number of shares “outstanding”.

Since Reg SHO only addresses delivery failures held in “registered clearing agencies” like the NSCC most naked short positions are now held in either “ex-clearing arrangements” between corrupt clearing firms or they’re “internalized” at the corrupt usually larger market making firms via a process called “desking”. Interestingly the SEC says that those “contractual arrangements” between clearing firms known as “ex-clearing arrangements” are none of our business because they do with “contractual law” issues and they only deal with “securities law” issues. Yeah right!

Jim, If the examples you give in fact are correct what is to stop the long shareholders just taking delivery of their certificates in physical form and then purchasing additional shares and taking delivery. At this point the nekkid short has to cover however he has nothing to cover with the only thing circulating are fictitous entitlements.

Anon,
What happens next is the SEC gets word from the powerful short sellers that the company and it’s shareholders are not playing the game of being fleeced. The SEC then goes after the company and the CEO with trumped up charges. Many times the company eventually gets shut down and shorty gets away with the loot. A few, like Overstock have been able to weather the storm.

I just came upon an article about the new 2005 SHO, and page 5 talks about buy-ins and HOW was manipulated before SHO:

In the past, clearing firms, or their
customers, however, could still avoid
delivering shares that had been sold
short and that were the subject of a
buy-in notice by selling additional
shares short. This transaction effectively
converted the oldest short
position into the newest short position
in the CNS system. At the same time,
no shares were delivered and the buyer
looking for share certificates remained
unfilled.

Here is the next paragraph talking about “execute a buyin
for “guaranteed delivery.””:

The only way for a buyer to insure
delivery, therefore, is to execute a buyin
for “guaranteed delivery.” Under
NASD buy-in rules, a buy-in for
guaranteed delivery may be executed
from any person or account, including
the existing long position of the party
buying-in so that the buyer receives
the cash equivalent of the securities.
54
The purchase is then reported to
NSCC which again allocates the cost
of the buy-in to the clearing members
that failed to deliver.
55

There are indeed a sequence of events that management teams of certain victimized corporations can do to force covering. Simply demanding the delivery of paper-certificated shares is an excellent practice both has 2 drawbacks. #1 is that the NSCC will go into “chill” mode once their cupboards start getting bare. They’ll refuse to deliver demanded for shares on a timely basis and stall until more paper-certificated shares are deposited at the DTC depository. #2 has to do with the recent FINRA 09-05 memo. Due to some chicanery involving the fraudulent sale of unregistered shares by some issuers there are new policies mandating that broker/dealers not take in paper-certificated shares from the public until they are thoroughly vetted for their sellability.

There was a press release yesterday stating how a half dozen brokers were fined for not vetting the shares that were presented to them for resale. Thus pulling certs now has a gamble to it in getting a broker to take them back. This was a godsend for the crooks because cert demand programs can be very effective. Cert demands still make sense but have the participants get in writing that your b/d will take them back. Crooked b/ds may say no way. Honest b/ds will say no problem as we know where you got those certs from i.e. us.

Theoretically, demanding the delivery of shares AFTER the DTC cupboards are emptied should lead to the forced buy-in of your shares due to this mandated delivery. Right? Read the research of Evans, Geczy, Musto and Reed (2003) revealing that only one-eighth of 1% of even “mandated” buy-ins are even executed on Wall Street. NSCC participating fraternity brothers just don’t buy-in fellow fraternity brothers. There is way too much money to steal from us stupid “long” investors as long as nobody on Wall Street breaks the never execute a buy-in “code”.

In fact it’s even more corrupt than that. An NSCC participating fraternity brother CANNOT buy-in a fraternity brother without first going to the NSCC management and filing a “request to execute a buy-in”. Then the NSCC managment says we’ll take it from here. They can then go to their self-replenishing “automated stock borrow program” (SBP) lending pool to “borrow” some shares to circumvent a buy-in.

“Buy-ins” are enormously important as the fear of a buy-in is the single best deterrent to these crimes and a “buy-in” is the only solution available when an abusive NSCC participating naked short seller refuses to deliver that which he sold. How clever is it to have your employees/alter ego (the NSCC management) go well out of its way to remove the prime deterrent and only ex-post facto cure for this criminal behavior?

Here is a section from a comment letter about the proposed Regulation SHO, which shows me how little progress has been made:

“…
To an outsider it’s obvious that the SEC hasn’t the interests of the public investor at heart. Daily they allow their friends at DTCC, NASD and the brokerage houses to tell them lies about what’s really going on inside the industry. And as recently seen, the SEC only gets active when outside pressure by politicians and people like Eliot Spitzer gets too great and pushes them into action. For a small public company, trying to work with the SEC to solve the current problems is like dealing with the hypocrisy of the pious or the arrogance of an Emperor without clothes.

How many SEC employees don’t do their job because:

6. They’ve forgotten the mandate by which the SEC was created and under which they were hired;

5. They have become too buddy-buddy with the people they’re supposed to regulate;

4. They, or their bosses, are cowards and don’t have the courage to do their job;

3. They’re incompetent, should be fired, but for various reasons can’t be kicked out;

2. They want to quit the SEC and go to work for the brokerage industry and don’t want to bite the hand that’s going to feed them in the future;

1. They are being paid off and are corrupt.

The SEC SHO rule changes are a band-aid for a gangrenous limb. They don’t go far enough for the future and certainly don’t address the problem of non-delivery of the naked short sale trades prior to 2004. What about all the previous “fail to deliver” trades? Are they going to be settled and if so, when? In addition, will there ever be a mechanism developed allowing a corporation to reconcile the true number of their shares issued with the number supposedly “owned” by investors?

Again, these proposed rules show a lack of courage by the SEC in their Trade Association coddling of the brokerage houses. They’re half measures, rule based and fall far short of instituting any meaningful change to the ethics by which the trading should be done. What happens to the client, the end purchaser, after all these changes? Is he better served? Will these rules stop the naked short selling abuse? Will his brokerage house “buy in” the client’s non-delivered purchases? I don’t think anything will change with these rules.

Having a brokerage license is a privilege, not a right. If the SEC has a brokerage house that doesn’t want to follow the proper short selling rules, why doesn’t the SEC, for example, restrict the brokerage house license for a day and only allow them to sell or short cover equity shares? Make the punishment hurt and fit the crime. If they abuse the rules again, restrict their trading for a week. And if they fail to learn their lesson, pull their right to conduct business in the financial markets forever. Their clients will be much better served moving their accounts over to a honest brokerage house.

For specific responses to your SHO rule changes, I refer you to and support the comments of the November 21, 2003, SHO submission by H. Glenn Bagwell, Jr., Attorney at Law, reproduced below.

Those citations are accurate but let’s look closer. The DTCC has forever IMPLIED that abusive short selling isn’t that big of a deal because the clearing firm of the buyer that didn’t get delivery can always execute a “guaranteed delivery buy-in”.

They then have policies that circumvent buy-ins as described above and then they allow the clearing firm of the buyer to earn interest off of the monetary value of the failed delivery obligation AS LONG AS IT DOESN’T START THE BUY-IN PROCESS. This is a bribe. The purchaser of the undelivered shares doesn’t earn the interest; it’s his clearing firm for crying out loud!

If the buyer received the earnings interest as is appropriate then there would be no BRIBE available for the clearing firm to avoid the buy-in of his fraternity brother that’s refusing to deliver that which he sold. Implying that buy-ins provide investor protection from abusive short selling knowing the Evans study data and being aware of your own policies is 100% misrepresentation.

December 2, 2005 /M2 PRESSWIRE/ BUYINS.NET, http://www.buyins.net, announced today that the Securities and Exchange Commission has approved an order approving a rule change for mandatory buy-ins, must receive deliveries and related amendments. On November 28th the Securities and Exchange Commission approved rule changes to NYSE Rules 282, 284, 289 and 290. The approved changes permit members and member organizations to initiate buy-ins, reduce the waiting period to initiate a buy-in from 30 days to 3 days, and to otherwise provide more standardized and consistent buy-in rules and procedures.

The member firm that initiates the buy-in is now allowed to execute the buy-in within 3 days if the security that is failing to deliver does not arrive by 2:30pm on the 3 rd day. The amendment also ensures that members comply with the closeout requirements of Regulation SHO. Members are obligated to comply with the marking, locate and delivery requirements of Regulation SHO for short sales of equity securities. The hope is that speeding up the forced cover of naked short sales and other failures to deliver will reduce systemic problems that have led to hundreds of companies appearing on Regulation SHO Threshold Security lists and nearly $6 billion in failures-to-deliver on any given day.

In addition, on September 14th , The Depository Trust & Clearing Corporation (DTCC) announced it had developed a new Web-based system that will standardize and automate the creation, delivery and tracking of buy-in notices for the securities industry and provide a single point of entry for brokers sending or receiving buy-in notices.

The new service, offered through The Depository Trust Company (DTC), a subsidiary of DTCC, is called SMART/Track for Buy-ins and improves upon an earlier DTC system, the Participant Exchange (PEX) service, which was a messaging facility only for buy-ins. The new service is subject to regulatory approval.
…

About BUYINS.NEThttp://WWW.BUYINS.NET is a service designed to help bonafide shareholders of publicly traded US companies fight naked short selling.

Naked short selling is the illegal act of short selling a stock when no affirmative determination has been made to locate shares of the stock to hypothecate in connection with the short sale.

A lot of time and a lot of typing are once again being done that leads to the same results that are the equivalent of picking on a sore on your arm that has not healed. The sore seldom goes away and usually gets worse until more positive action is taken to cure the sore, but we must go through the exercise to get to that point. Quite frankly I am tired of responding anymore until we have a definitive plan to oust our GOVERNMENT and start over again. Right now the only weapon we have, which is the greatest, is the power to not use the corrupt markets we have and organize a tea party type organization at grass roots level to use other exchanges and use the internet to spread the word of what we are doing. Hate to say it but the media and the market are beyond corrupt to the point where they will be eating their own arms to feed themselves.

I once posted that snowflakes can fall for a long time to no effect and it is easy to believe they’ve had “no effect”.

But the snowflakes pile up and the next thing you know there is an avalanche of change.

An avalanche of change is coming to the financial system and looking to the past (bailouts of BCCI, savings and loan, long term capital management, the mortgage crisis, etc.) doesn’t recognize the seething anger the everyman feels to barely pay off his mortgage and visa, then watch the people who were bailed out bonus themselves, party and laugh at the rest of us.

Activists have made progress and Patrick and company should pat themselves on their back:

– turned the tin hat conspiracy theory of naked short selling into a mainstream accepted fact
– every investor knows the SEC is on the take
– the founder of the liquidity exemption, Bernie Madoff (one of the founders of Nasdaq) is in prison
– the people behind computerized front running (Goldman Sachs) are being investigated
– Dendreon’s drug is now approved

We’re not there yet, but keep trying. The truth will always win and there are 7 billion investors and only a few thousand scumbags that control the casino, media and politicians.

As we wake up our brothers and sisters, it is inevitable we will win against the scrawny old men behind the curtain who control Oz.

It’s easy to be dejected, but go the other way.

Let this post motivate you to write another letter to the editor or your political representative, bring the issue up at dinner with your skeptical relatives or start your own activist idea.

We are winning. It’s only a matter of time and you can make it happen more quickly as every snowflake counts.

The SEC is the protector of the “Financial Industry”, which is the engine that fuels New York City and which produces the elixir which controls national politics – i.e. massive amounts of money.

Perhaps at some point at the dawn of financial time, Wall St. felt limited to serving as an intermediary for the transfer of capital and was content to skim off a fraction of the value of each transfer as its reward for making a market. At some point these wizards decided that having any sort of connection between real assets and real value attached to the paper they shuffled as being an unnecessarily restrictive business model.

Why limit yourself to commissions on legitimate securities if you could earn them on imaginary ones?

How much more will the “industry” earn in profits if it can sell not only stock, but also “securities entitlements”? Futures contracts? Insurance policies on stock transactions?

Over the last decade, the business model seems to have expanded to encompass a new idea: create a security, sell it on commission, and then bet against it, since you know it is garbage.

The SEC views its mission these days as protecting the right to print up whatever sort of security the brightest guys in the room can gerrymander and sell it on commission. Anybody within the “industry” (and that includes the SEC) will fight tooth and claw to protect the “free market” right continue to allow the Wall St. crowd to print and sell financial paper.

Note the emphasis on “sell”. If you know the security is worthless, you want to be on the sell side, and you need to protect the right to sell, sell, sell.

Expect to hear much in the near future about “undue regulation crippling the profitability of the financial industry”, damaging “liquidity”, and “impeding price discovery mechanisms”.

Just as multi-billionaires got the Estate Tax killed by relating anecdotal stories about bereaved families having to sell the family farm after the death of the patriarch in order to pay the “death tax”, expect the same PR machine to start cranking out stories about how increased financial regulation will kill small businesses across the USA.

But there is no “free market”, and there is no “capitalism”, without effective regulation. In the absence of effective regulation, thieves will end up stealing everything. Everything!!

The bane of the American system of government is that just about every agency designed on paper to serve a watchdog function has ended up being staffed by insiders from that industry. Supposedly, nobody else has the expertise about the industry to effectively perform the oversight function. Over time, the watchdog ends up defending the industry against the public.

We still have the right to our votes counted, or at least we will have that right until paper ballots are replaced by electronic voting machines. But fighting all that money will be nearly impossible. The campaign must be precisely focused and reduced to the most simple and lowest common denominator, something that can be printed on a T-shirt, something like:

“Buy-ins or Prison”

Until an new crowd occupies the halls of Congress, and until these newly elected men and women are blessed with the courage and the time to purge the financial lackeys out of the regulatory and enforcement systems, I see no hope for a regulatory or legal end to this criminal orgy.

Any political solution will have to start with an educated voting public. I tell everyone I meet about DeepCapture.com. Thanks, you guys, for creating and continuing this site. It’s a fine start.

In addition to the Goldman Sachs criminal investigations things are heating up on the abusive short selling of gold and silver bullion. The anti-trust division of the DOJ has reportedly opened up a criminal investigation on the bullion banks. The similarities in between how the corrupt bullion banks and the gold and silver ETFs operate and how the DTCC operates are uncanny. The commonality is the use of a “fractional reserve” custody system UNBEKNOWNST to those utilizing the services of these “legal custodians”.

In the bullion world the London Bullion Market Association (LBMA) is known as the “physical” market. Sophisticated bullion investors have for years assumed that when they buy 100 ounces of gold bullion through this “physical” market that the LBMA would go out and buy 100 ounces of gold and put it in their vault. Nottttt! As it turns out the LBMA has been using a “fractional reserve” foundation for a long time.

There are corrupt bullion banks and legitimate ones. There are also “allocated” accounts and “unallocated” accounts. A bullion bank that uses “allocated” accounts goes out and buys and stores that bullion for its client. There is a serial number ascribed to a specific lot of gold that the buyer is given. There are also periodic audits done. In an “unallocated” account there is no specific serial number given to the client. Way down in the fine print the revelation is made that the purchaser of this theoretically “physical” bullion is actually an “UNSECURED CREDITOR” and he only owns a claim against the assets of the bullion bank. OOPS!

The two largest ETFs for gold and silver bullion are the GLD and the SLV. It now turns out that they too have been operating with “unallocated” accounts and are also on a “fractional reserve” custody basis. So who are these “custodians” for these ETFs? The custodians are none other than JP Morgan and HSBC bank who reportedly just so happen to be the largest holders of concentrated short positions in these metals.

Question #1 becomes: So what do these ETFs and corrupt bullion banks do with the money they took in? Question #2 becomes: What happens if gold goes nuts and the investment they put the money in doesn’t? Then the assets of the bullion bank or ETF will be less than the claims against it.

Let’s change channels to how the NSCC subdivision of the DTCC operates. It holds the financial assets held in “street name” in unallocated accounts via the use of “anonymous pooling”. There are no paper certificate numbers analogous to the serial numbers used for gold and silver bullion held in allocated accounts. Once again it represents a “fractional reserve” custody system. OK, who are the “legal custodians”? The “legal custodian” is the DTC subdivision of the DTCC. Who are the parties holding the naked short positions in our markets? They are the clearing firm “participants” of the DTC and NSCC. Once again we see massive fraud involving corrupt custodians working on behalf of corrupt naked short sellers that co-own the custodian.

The “paper gold” accounting credits and the “security entitlements” held by the purchasers of nonexistent securities are “derivatives” of the underlying nonexistent gold and underlying nonexistent securities that were purchased. These “derivatives” are the weapons used by corrupt legal custodians fraudulently running “fractional reserve” custodial systems unbeknownst to their clients but on behalf of their owners. It should be no surprise that these corrupt “legal custodians” are the same parties that have run up massive naked short positions and therefore are highly financially incentivized to manipulate downwards the price of the financial asset purchased by their clients. What kind of a “legal custodian” would have the gall to assume naked short positions via placing bets against the value of the financial assets they were ENTRUSTED to hold in “custody” and then quietly convert their custodial system to one based upon “fractional reserves”?

Do you recall what occurred in the recent hearings on Capitol Hill when the financial interests of Goldman Sachs conflicted with that of their clients? Jaws dropped worldwide. Now add in the fiduciary duty of care owed by a “surrogate legal custodian” to the clients whose financial assets are held in their custody.

There’s an interesting parallel to the above post in that supposedly JPM and HSBC “volunteered” to act as the legal custodian for the GLD and SLV and they “volunteered” to do it at no cost i.e. they would absorb the storage fees and perhaps the insurance fees.

This immediately reminded me of the “Madoff exemption” in which Peter and Bernie Madoff “volunteered” to naked short sell into their own client’s orders at below the national best bid (NBB) in order to “inject liquidity” preferentially to their clients. That’s a pretty good way to get buy orders routed in your direction in order to naked short sell into them. Beware of Wall Street insiders bearing gifts!

After many years I’m finally getting a warm feeling that the DOJ has recognized the EMERGENT nature of abusive short selling frauds and the incredible damages associated with corrupt “fractional reserve” custody systems, the damaging nature of the “derivatives” they spawn and the relationship between the owners of the corrupt custodian and the perpetrators of the fraud. They are one and the same and co-exist in an alter ego style leading to frauds associated with the use of “straw man” tactics.

The other fact I finally sense being appreciated is that these are CRIMES IN PROGRESS. On Monday morning U.S. investors are going to buy hundreds of millions of dollars worth of U.S. development stage corporations with so many readily sellable share price depressing “security entitlements” poisoning its share structure that they may have already been pre-ordained to die an early death. Where is the release of this extremely “material” information that is in possession of the regulators and SROs that were not only asleep at the wheel when these crime sprees were being established but actually facilitated their development.

The difference between the DOJ and the captured regulators and SROs like the SEC, FINRA and the NSCC is that the DOJ was not asleep at the wheel when these crime waves were established. These regulators and SROs have a huge incentive NOT to dig in and expose these gigantic naked short positions. Perhaps all along the only form of truly meaningful deterrence to these crimes was and is jail time.

You mention two problems with demanding certs. Those problems do not seem to apply when demanding DRS shares. You just direct the broker to assign your shares to the transfer agent for DRS. They can’t claim the shares take time to process. That’s the reason for DRS anyway. And no vetting of paper certs is needed.

They are electronic, but different in normal brokerage shares, which are owned by Cede and Co. on your brokerage’s behalf through a long daisy chain of ownership.

(Cede & Co. owns them for the clearing house who owns them for your brokerage who owns them for you.)

I encourage every shareholder to take every share they plan to own for more than six months and put it into DRS electronic ownership which registers them as the actual owners of the shares. If you want to sell, it is 1-3 days to get them into your brokerage account.

In the mean time, you have no risk of losing them if your brokerage or their clearing house goes under.

You say that there is no “button” you can push to get a total of all “securities held long” in some particular stock. I don’t understand that. Here is why.

Alll “securities held long” are in a broker account somewhere. All brokers go through clearing brokers who in turn are direct participants in DTC or who are indirect participants in DTC. At each level, the accounts are totaled. Why dont the accounts at DTC relect all the totals at the leaves of the tree?

You are right. If you went to every country in the world, totaled shares held long at the brokerages in that country, than minused what Cede & Co. held, you would know the answer.

The problem is our regulators don’t have the power to audit other countries or even other states in some instances.

You’d think the company could audit, but the best they can get is a list of “Non objecting beneficial owners” which exempts other countries and also objecting owners. Scam brokerages just tell the regulators all their owners object to having their position disclosed.

The system is intentionally complicated because it allows them to steal.

IF EVERYONE USED DRS, THERE WOULD BE NO OPPORTUNITY FOR THEM TO STEAL FROM YOU.

No, there really is no button to push and here’s why. Let’s say that there are 100 million paper-certificated “Acme” shares totally “outstanding” and they’re all held at the DTC depository in “street name”. Let’s further assume that there are 10 NSCC participating clearing firms (A through J) each holding 10 million shares in their “NSCC participant shares account”. These are real shares with paper certificate backing. The certs are held at the DTC “depository” where the DTC acts as the “legal custodian”. Although clearing firm A has 10 million legitimate shares in its shares a/c it might be IMPLYING that it is “holding long” 30 million “Acme securities” (not necessarily “shares” as IOUs are indeed “securities”) when it sends out its monthly brokerage statement.

The NSCC management intentionally limits its visibility to the “participant’s shares accounts”. When Acme management suspects a naked shorting problem and orders a “securities position report” (SPR) from the NSCC the report will say that there are 100 million paper-certificated shares at the DTC and 100 million electronic book entry shares in our participants accounts so you over at Acme must be smoking something because it all looks perfect FROM OUR INTENTIONALLY LIMITED VIEW.

What Acme management wanted to know is what is the disparity between their 100 million shares “outstanding” and the total amount of “securities held long” as referenced on the monthly brokerage statements of all NSCC participating clearing firms. The NSCC management’s attitude is that you “Acme’s” of the world suspecting these “disparities” bring it up with our individual participating clearing firms because from our INTENTIONALLY LIMITED VIEW everything looks hunky-doorie. They’ll also claim that even if we had that information we couldn’t tell you over at Acme because it might reveal one of our participant’s “PROPRIETARY TRADING METHODOLOGIES” that deserves secrecy. Keep in mind that the NSCC management members are the employees of the crooks doing the abusive short selling and all they’re doing is looking after the financial interests of their co-owning “participants” i.e. their alter ego. Notice the plausible deniability of the NSCC management i.e. “We had no idea that our participants (bosses) were behaving like this; shame on them”.

These “disparities” can be hidden in any of the 6 hiding places in “zone B” i.e. via “ex-clearing arrangements”, via “broker/dealer internalization” (desking), offshore, etc. One of those et ceteras, however, is the NSCC “C” sub accounts WHICH IS 100% VISIBLE TO THE NSCC AT ALL TIMES. These “long positions” consist of “security entitlements” that are created during each and every NSCC “stock borrow program” curing of a delivery failure. The SBP is a counterfeiting machine with 3 functions. It illegally “cures” delivery failures without “good form delivery” occurring, it hides the evidence of delivery failures via this “privileged information” nonsense cited above and it prevents these delivery failures from ever being bought in via the NSCC’s pretending to be “powerless” to buy-in delivery failures DESPITE THE FACT THAT IT HAS SECURED 15 OF THE 16 SOURCES OF EMPOWERMENT TO EXECUTE BUY-INS.

To this day the SEC refers to the “self-regulatory organizations” (SROs) like FINRA and the NSCC as “the first line of defense against market abuses” like abusive short selling. Some of the mandates of the SRO known as the NSCC include: acting in the investing public’s interest, providing investor protection, making sure that all securities transactions “promptly and accurately clear and settle”, creating and enforcing rules and regulations regarding the “business conduct” of its participants, etc. Wouldn’t you think that the non-stop selling of nonexistent shares all day long would be considered part of the “business conduct” of its participants? The NSCC management in essence says not only NO but the evidence of these crimes is “proprietary” and deserving of secrecy. This insanity known as “self-regulation” means that the employees of the crooks wear a “securities cop” badge.

“You don’t get it, Ames. Even Khuzami, the SEC guy in charge of the Goldman case, is a fraud; the fucker was Deutsche’s general counsel when they pulled the same CDO scam as Goldman. You have no idea how deep this goes.””

Sounds like Bobo (sadly missed, hope he comes back) and the pill that takes you down the rabbit hole.

“Let’s say the government decides one day, ‘You know, we oughta listen to Che here, let’s throw the book at every firm and every executive that our people can make a case against. Because you know, gosh, it’s all about rule of law and blind justice, just like Che says.’ OK, so now this means indicting just about every serious player in finance, so they take down Goldman Sachs, they take down Citigroup, JP Morgan, BofA… and they also serve all the big funds who are at least as guilty, if not more. So they shut down Pimco, Blackrock, Citadel… maybe they indict Geithner and Summers, haul in some of Bush’s crooks… right?”

You victims are a bunch of losers. I can pay for dinner with the money I stole from you. You can’t pay for dinner because the bank account I stole is empty, so you are a loser.

That’s what losers do—they whine. You, for example, Che—you whine all the time, and look at you… Can you pay the bill for this meal? Is there a libertarian on earth who can afford to buy a decent meal in Manhattan? And now, look at me: I’m a hypocrite. Hell yes I am! I lie every day of my life, I lie to myself in my sleep. Hell, I’m lying to you right now, in fact I don’t even know what the fuck I’m saying anymore because I’m so used to lying. And yet—who’s the guy with the black card? Who’s the one who’s going to pick up the check tonight? Guys with power, guys like me, we lie. You got that? ‘Lie’ as in ‘My Lai’ the massacre—as in, ‘My Lai you long time, me so free-markety.’ You distract the dumbshits with free-market B.S. because hey, for whatever reason, that’s what the public likes to hear, it doesn’t really matter what lie you feed them so long as it’s the lie that puts them in a trance. And then behind the scenes, you do the very opposite: You fix the game, you cover up this problem here with those funds there, you move shit around, you skim budgets and you subsidize the system, you cover up the bad shit and once in a while throw a has-been to the wolves to keep the public entertained—that’s the way the system works, and anyone who’s an adult understands that. And everyone who doesn’t understand that can go form an online libertarian chat group and complain with all their little libertarian friends about free markets and Jekyll Island and ‘Wahhh! It’s not not fair, waahhhh!’”

Davidn, thank you for your inspirational post above. I must confess to having developed some serious pessimism recently as market reform seems to move so slowly compared to the rate of exposure of criminal behavior. Your post provides a ray of hope!

Yesterday on this forum we got into a discussion about corrupt “legal custodians” like the bullion banks in the theoretical “physical market” that use “unallocated” accounts as well as the DTC. These theoretical “custodians” have illegally emigrated to a “fractional reserve” custody relationship. This allows the co-owners of the custodian, its “participants”, to easily naked short sell trillions of dollars worth of either gold or silver bullion or shares of U.S. corporations without ever having to worry about delivering that which they sold.

These criminals have learned that all they need to do is to inventory a small percentage of the commodity or securities that their participants short sold in order to service the normal levels of delivery demands that might be anticipated. The premise is that barring a “run on the bank” the participants that own the “legal custodian” can make an absolute fortune naked short selling that which they are supposed to be actively “safeguarding” for their clients.

These “custodians” need an excuse as to why they can’t tell the whole truth about the disparity between what they really hold in their possession and what they IMPLY they are “holding long”. This excuse is typically based upon absurd “privileged information” assertions associated with “proprietary trading methodologies”. How rampant is this and how necessary is it now to cover up this crime wave before the investing public figures out that many of their historical investments in especially development stage U.S. corporations never did have a chance to succeed?

The recent Bear Stearns and Lehman Brothers meltdowns if nothing else have revealed to us the lengths that the regulators and SROs facilitating these frauds will go to in order to effect a cover-up and just how obvious their cover-up efforts have become. The SEC and the SROs want us to believe that the 145-fold (14,400%) increase in FTDs (failures to deliver) in the trading of Bear Stearns shares and the 151-fold (15,000%) increase in the FTDs of Lehman Brothers as their share prices were literally falling off of a cliff were just background noise that we should not be concerned with. It really is that necessary to prolong the cover-up and it really has become that obvious. Imagine the pitchfork carrying mob that might form if the truth should ever get out.

We’ve (finally) come upon an interesting moment in time wherein those victims that have become educated as to their “victimhood” thanks to the DeepCapture.com’s of the world have now reached a critical mass wherein progress can be made. If the regulators and SROs in power want to address this pandemic crime spree on a macro scale then a cathartic event needs to transpire in which all archaic delivery failures above the historical 0.5% threshold level need to FINALLY be bought in so that the purchasers of these nonexistent shares can FINALLY get delivery of that which they purchased.

Until this one time cathartic event occurs the corrupt status quo as well as the illegal cover-up will continue and development stage U.S. corporations deemed to be an “easy prey” in a fractional reserve environment will be picked off right and left regardless of their merits. Why is this? It’s because the regulators and the SROs by definition cannot be in cover-up phase and robust investor protection phase at the same time. The lack of any prosecutions in the Bear Stearns and Lehman Brothers cases as well as the SEC Inspector General’s Audit No. 450 clearly reveal that our regulators and SROs are still in an embarrassingly obvious cover-up phase.

Part of the driving force for getting these naked short positions covered has to do with the fact that the information related to the size of the disparity between the number of shares “outstanding” and the number of securities theoretically “being held long” in any corporation’s share structure is of an extremely “MATERIAL” nature as it directly relates to the prognosis for the success of the corporation. In fact no information related to a corporation could POSSIBLY be more “MATERIAL” TO prognosis for success of a corporation. Since revealing the evidence of these “open short positions” would obviously expose the initial fraud as well as the illegal cover-up efforts of the regulators and the SROs then I would think that forcing the covering of these naked short positions by some not so subtle taps on the shoulders might be a reality before the DOJ gets too involved.

The simple goal of these emergent buy-ins done before any other U.S. corporations can be forced into bankruptcy is to allow an unmanipulated “supply” variable to interact with an unmanipulated “demand” variable to “discover” an unmanipulated share price level through what is referred to as the “price discovery” process. Fractional reserve custody systems induce the “issuance” of derivatives like “paper gold” and readily sellable share price depressing “security entitlements” that result in a gigantic manipulation upwards of the readily sellable “supply” variable and therefore a tainted price discovery process in which the co-owners of the custodian can assume immense naked short positions and predictably kill any U.S. corporation they target for destruction.
Key concepts:
1) Corrupt custodian looking out only for the financial interests of its co-owning “participants”.
2) Silently sets up a fractional reserve custody system.
3) A green light to sell nonexistent shares into buy orders inducing the issuance of readily sellable “security entitlements”.
4) Increase in the “supply” of that which is readily sellable.
5) Decrease in share price.
6) Markets “rigged” so that both buy and sell orders bring about share price depression.
7) The funds of “long” investors get shunted to the “participants/co-owners” of the custodian despite their continued refusal to deliver in good form that which they sold.

We need to step back and look at the regulatory capture from feces in the beef, to subsidized corn farming so we can eat high fructose corn syrup that makes us fat to the revolving door between the Pentagon and military contractors to going to war to subsidize gasoline at the expense of fuel cells.

As the oil laps against shore, realize it might get ten times worse because that industry is a Wallstreet cash cow.

What they call “red tape” is regulations to protect the average person against industrial greed.

Wallstreet control of the SEC is a symptom of a bigger problem, where industry determines who gets elected through donations, what laws get passed through lobbiests and how the masses are chained with indentured servitude (easy credit card / brokerage loans, indentured to toil to the debt until you die, mort gage is death contract in French).

I believe Dr Jim said that the DTC does not NOW have the ability to total all “secutities held long”. By intention. But there is no reason why that can’t be required by the SEC. Which is what is needed to determine the FTD count at any time. This is the only way to put an end to the senseless arguing about whether it is a problem or not.

An audited share count is what we need. It has nothing to do with revealiong broker privacy, because the totals can be done without reference to a broker.

Listening to Warren Buffet this Am on CNBC this Am is in a word SHAMEFUL. Cmon Warren nuf with the we all were wrong. NO Warren your no fool. You KNEW what was going on and for YEARS you and your ilk epxloited it when it was to your advantage. Cept this time it got beyond you and your coeterie. The solution was always simple Warren ENFORCE THE LAW. Lastly Warren, your buds at Goldman were INTENTIONALLY betting on the collapse of a SECTOR that was critical to the USA ECONOMY. And while they were doing such the guns were turned on them and they did the HELP ME make me and money flowed thru AIG to them and THEN it was HELP ME their attacking me with short selling. Make me a HOLDING company. Don’t know who was screaming louder back then. GS or MS. NOW I’ve been a long time supporter of Warren for Years. BUT when he begins to DEFEND the undefensible then warren has forgetten what it’s all about. YOU DO NOT MAKE BETS THAT DAMAGE MILLIONS OF INDIVIDUALS and do it in the name of INVESTING. How much did you add to the damage Warren with the talking down on MBIA etc? Shameful. Where were you Warren to inform the public that the tactic of ABNNS was destroying WEALTH and security. TSK TSK.

I heard Patrick in a radio interview last week state that Goldman Sachs is a “Criminal Enterprise”.

Buffet is getting 10% interest on his investment in Goldman Sachs and obviously likes this return.

Unfortunately, Buffet has 5 billion reasons why he sees no problems with the Abacus deal. He has allowed his financial interest in Goldman cloud his judgment, and now has made himself look like a foolish old man in public.

Anon, no we don’t. This blog is about regulatory capture, not Warren Buffet or Patrick. Always trying to antagonize, I wonder why? I think I know the answer already. Patrick is buy running his “Profitable” company whilest you and your ilk try to destroy it and others like it. Go about your business, the knock on your door by people with guns and badges maybe coming your way soon, if you are who I think you are.

In regards to the “corrupt legal custodians” of the financial assets that Main Street “long” investors purchase try to imagine how predictable this “hijacking” of financial assets should have been. Picture 2 guys in a room full of gold bullion or stock certificates. These are the “custodians”. They see the pile of a thousand bricks of gold or a thousand stock certificates and they notice that on any given day only 3 new bars of gold or stock certificates come in and three go out after being ordered out for delivery. It dawns on them that it’s a shame that nobody is earning rental income while renting out the other 997. In a pile like that who’s going to miss 200 bars or certificates. The purchasers of these financial assets will never know the difference. All they ever wanted in the first place was the right to resell that which they purchased and hopefully at a higher price than they paid. No harm no foul, right? Wrong!

Part of the “long” investor’s wish was to be able to resell the financial asset AT A PROFIT. How in the world can you sell at a profit if the custodian is constantly increasing the “supply” of that which can be purchased just so that he can earn some illicit rental income on somebody else’s private property? OK, so who does the corrupt custodian rent the misappropriated gold bars or certificates to? He rents them to short sellers that wish to place a negative bet that the price of gold or shares does not go up. The corrupt custodian and the short sellers have now set up a symbiotic relationship leading to a self-fulfilling prophecy i.e. the price of that financial asset is going nowhere but downwards due to the constant manipulation upwards of the “supply” variable.

Let’s go one step further, what if the custodian and the short seller were one and the same and the custodian (the DTC in the case of securities) was only acting as a “straw man” on behalf of the financial interests of the short sellers i.e. their fraternity brothers the NSCC “participants”. But what if somebody periodically audited the size of the pile of financial assets? Wouldn’t that would blow up the whole scam. The NSCC management had a solution for that. They decided to run their clearance and settlement system based on a “Continuous Net Settlement” (CNS) basis. In this system “Continuous” refers to no audits possible.

The financial assets just keep getting rolled into and out of the pile of assets. Since the pile of assets is held in an “anonymously pooled” format like the “unallocated” accounts of the corrupt bullion banks nobody could ever figure out that more than one party have purchased the same impossible to identify financial asset/share. The key is to make sure that there remains in the pile at all times enough assets to service the demands made for their delivery. Oh and as far as that concept of hoping to sell that which you purchased at a profit that became collateral damage as it didn’t quite fit in with the self-fulfilling prophecy the custodians and their short selling alter egos had concocted.

Congress Members Bet on Fall in Stocks
By JASON ZWEIG, TOM MCGINTY And BRODY MULLINS

Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows.

Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.

According to The Journal’s analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track.

There’s no evidence the legislators and their spouses used privileged information or failed to follow rules on disclosure. Congressional rules permit lawmakers and their families to invest in—or bet against—publicly held companies they oversee through committee assignments, as well as broader markets or indices. While some made money, others lost.

Some of these legislators have publicly criticized practices such as short-selling, or betting on a security to decline. In February, Sen. Johnny Isakson (R., Ga.) argued on the Senate floor that “we don’t need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale.”

On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International Group Inc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are “leveraged short” funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds.

Sen. Isakson said his account is professionally managed by Morgan Stanley Smith Barney and he has no control over it. “They make those decisions and I report what they do,” Mr. Isakson said. “I put money away in my career so I can hopefully retire one day.”

Sen. Isakson said, “Short selling has a role to play in the market.” He said he supports legislation to limit it but wouldn’t prohibit it.

Such trading involving members of Congress or spouses “doesn’t look real great when the economy is tanking and people are blaming the government,” said former Rep. Joel Hefley (R., Colo.), once head of the House Ethics Committee. Still, he said, “You can’t have people not using their best judgment on their investment portfolio.”

According to The Journal’s analysis of the disclosures, collected by the Center for Responsive Politics, few members of Congress made more than a dozen securities trades in 2008. Typical trades were for a few hundred or a few thousand dollars.

While some lawmakers trade for their own accounts, others delegate trading to a spouse, stockbroker or financial adviser. A few legislators keep their money in blind trusts and don’t know how it’s invested.

Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures.

Almost all the trades were in put options, which convey the right to sell a stock or other instrument at a given price until a given date. At least 34 times, Mr. Gillibrand bought puts on stocks of home builders, including Beazer Homes USA Inc., Hovnanian Enterprises Inc., Meritage Homes Corp. and Ryland Group Inc. These were bets the builder stocks would fall; if they did, the puts’ value would rise.

Mr. Gillibrand also bought call options on ProShares UltraShort Real Estate. Although call options are bullish bets, this trade, too, was a bet against the property market, because the ProShares fund is designed to rise $2 for each $1 fall in real-estate stocks. His profit or loss couldn’t be determined.

Sen. Gillibrand, in an April 22 news release on White House financial-regulatory proposals, praised the effort to “rein in excessive risk and leverage in the pursuit of short-term profits.”

“The senator was referring to activity by some institutions that were leveraging in excess of 20 to one, using taxpayer money on extremely risky short-term bets rather than long-term strategies that benefit the broader economy,” said spokesman Matt Canter. Any comparison of those remarks with her husband’s trading “is wrong,” he said, adding that the senator “was not involved in his trading.” Her office declined to make Mr. Gillibrand available for comment.

As previously reported by The Journal, in 2008 Rep. Spencer Bachus (R., Ala.) made roughly four dozen trades in shares of ProShares UltraShort QQQ and its options, according to disclosure records. This fund is designed to go up twice as much as the Nasdaq 100 stock index goes down.

Rep. Bachus makes his own trades through a Fidelity account. He is the ranking Republican on the House Financial Services Committee, which has legislative oversight over the capital markets.

“I don’t trade on margin”—money borrowed from a broker to raise potential returns—Rep. Bachus said in an email, “and don’t consider my investments leveraged to any risky extent.” He added: “Never have I traded on nonpublic information, nor do I trade in financial stocks.”

Rep. Bachus made roughly $28,000 on his trades in options and leveraged ETFs in 2008, according to a Journal analysis, a figure he called “essentially correct.”

On July 14, 2008, Rep. Bachus said in a letter to Financial Services Committee Chairman Barney Frank that it was “quite apparent” the challenges facing mortgage companies Fannie Mae and Freddie Mac were caused partly by “short-seller activities.” A spokesman for Rep. Bachus didn’t respond to requests for comment on the letter.

Rep. Shelley Berkley (D., Nev.), a member of the House Ways and Means Committee, has been a critic of Wall Street. In a statement on the House floor Feb. 23, she said: “Representing Las Vegas, let me assure you, no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry.”

An account held by her husband, Lawrence Lehrner, shows 57 trades in 2008 in ETFs designed to gain $2 for each $1 drop in the value of a market index, the disclosures show. Between July 25 and July 29, 2008—four months after Bear Stearns Cos. fell—records show four trades in and out of ProShares UltraShort Financial fund.

On Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, the account added ProShares UltraShort S&P 500, a fund that thrives when blue-chip stocks tumble.

It was sold over the next two days at a 5% profit, according to disclosures. The account earned a modest net profit of a little over $700 on the trades in leveraged funds in 2008, based on The Journal’s analysis of trading records.

“All trades were done by a licensed money manager without any input from my husband or me,” Rep. Berkley said. “This is exactly the way many people handle whatever monies they may have in the stock market. I know in our case, he operated wholly within the existing regulations.” Her office declined to make her husband’s money manager available for comment.

The Securities and Exchange Commission and the regulatory arm of NYSE Euronext disciplined the equities arm of Goldman Sachs & Co. on Tuesday for alleged violations of rules on short-selling stocks.

In December 2008 and January 2009, Goldman Sachs Execution & Clearing LP failed to close out failures-to-deliver positions on some stocks, while accepting hundreds of short-sale orders in stocks in which the firm had open fail-to-deliver positions, according to a notice from NYSE Regulation.

The disciplinary action comes as Goldman Sachs grapples with SEC accusations of civil fraud tied to its dealings in the mortgage market.

Goldman Sachs neither admitted nor denied the findings announced Tuesday. NYSE Euronext imposed a censure and a $450,000 fine on the firm, an amount that will be reduced by a $225,000 civil monetary penalty related to proceedings instituted by the Securities and Exchange Commission, according to the notice.

Remember Hillary’s magic cattles futures trade? You an bet da GS boyz have all the goods on other magic trades, tips, front runs and assorted other finacial hijinks in the past our Regulators, DOJ Congress members and Executive Branch have been enriched by in the past many years. Oh, and don’t forget the ‘right’ Judges.

Look for fast settlement by GS with a fine that looks huge to the public market punter but will be measured in single digit percentages of the scam skim money they made. The game must go on or the house would get burned down around all the boyz playmates.

As for jail for anyone? Only some small fry that may get picked to take the fall and wrath of the public from the real big ones.

Buffet? Only Warren knows. Only time will tell. Still hoping he is a good guy.

After all, at his age you have to be making percentage bets in your own mind…as to the chances of when your body reaches room temp…well is this it? Is what we are conscience of all there really is, or is there more waiting for you on another side?

——————————
FIRST, NOTE CLEARLY THAT THE NYSE PURPOSEFULLY CREATED THIS DOCUMENT AS AN IMAGE PDF INSTEAD OF A SEARCHABLE PDF.

What this means is that this document is INVISIBLE to search engine spiders, and one CANNOT COPY AND PASTE any of the facts of this case, and one CANNOT USE A SEARCH ENGINE to find the facts of this case.

– TOTAL TIME ELAPSED – About 1.5 YEARS…
(ONE YEAR and SIX MONTHS) – from Dec 2009 through May 3, 2010

——————————-
HOW MUCH MONEY DID GOLDMAN SACHS MAKE THROUGH THESE NAKED SHORTING CRIMES?

– The Foxy Wall Street Police watching the hen house make THIS FACT A SECRET since it considers Naked Shorting a proprietary trading method.

——————————-
WAS THE PROFIT FROM THESE NAKED SHORTING CRIMES LESS THAN THE $450,000 FINE?

– The Foxy Wall Street Police watching the hen house make THIS FACT A SECRET since it considers Naked Shorting a proprietary trading method.

——————————-
HOW MANY LOOPHOLES DO THE FOXY WALL STREET POLICE GIVE THEIR FOXY WALL STREET FRATERNITY BROTHERS FOR DELIVERING SECURITIES?

– When an individual investor buys or sells a security for his retirement fund or college fund for his/her children, the money or stock shares are IMMEDIATELY taken from his account for delivery on T+3 to fulfill the stated Wall Street Contract for delivery on T+3.

– This document reveals only two of the LOOPHOLES given by Foxy Wall Street Police watching the hen house to their Foxy Fraternity Brothers
— T+4
— T+6
— And HOW can they reset, restart these T+4 and T+6 times? Not explained here.

———————————
ARE THE CORPORATIONS AND THEIR SHAREHOLDERS FROM WHOM GOLDMAN SACHS STOLE MONEY THROUGH THEIR NAKED SHORING CRIMES COMPENSATED?

– NO, the Foxy Wall Street Police watching the hen house never give financial compensation to the corporations nor their stockholders.

– In FACT, as this document shows, the names of the corporation who suffered from the Goldman Sachs crimes ARE NOT NAMED, because this is part of the STANDARD COVER-UP by the Foxy Wall Street Police.

– The description of the consent does not even give us the total number of securities NAKED SHORTED by Goldman Sachs. On page 7, there is mention of 22 securities, which are not named.

———————————–
ON WALL STREET, THE HEN HOUSE (INDIVIDUAL INVESTORS & CORPORATIONS) IS “GUARDED” BY WALL STREET FOXES (SROs) TO “PREVENT?” THEIR FOXY WALL STREET FRATERNITY BROTHERS FROM KILLING THE CHICKENS…

– The first thought that comes to the minds of the Foxy Wall Street Police, when the chickens (individual investors & corporations) complain to them that they are being manipulated and killed by Foxy Wall Street Fraternity Brothers is…

… Chickens, why are you complaining? The purpose of Wall Street is to make money. And We Wall Streeters makes even more money by manipulating the system through all the non-regulatory loopholes created by our Foxy Fraternity Brother Police. Don’t you understand Chickens?, you exist for US FOXES – so we can feed upon you. So stop complaining – you chickens have a delicious taste.

Goldman, Naked
Goldman Sachs Group Inc’s GS.N market-making unit has been censured and fined $450,000 after U.S. regulators found hundreds of violations over how it processed customer trades involving short sales of stocks.

When a thief steals manhole covers from a city and turns them in to a recycling center to get reimbursed for the scrap metal content, it is unethical and probably illegal for the recycling center to simply accept the manhole covers and pay for them, making their profit. They have to ask some sharp questions.

Goldman Sachs made their money by watching closely and managing information so tightly that some clients did not even know the right questions to ask. The analogy isn’t perfect; for GS, selling their “manhole covers” was actually legal. It’s a rotten system. Does anyone
think we’d have a better system if recycling centers simply
trusted that suppliers of manhole covers are fully transparent
and forthcoming about material information in their possession?

Warren Buffett makes his money by understanding where the system
is corrupt and being smarter than people who don’t. He understands
that a AAA rating meant nothing for subprime mortages. He thinks
you’re stupid if you relied on that rating instead of “doing your
own research”. He understands that GS is going to withhold information about whether the product they are selling is worth buying and is going to manipulate appearances to make it possible for you to
draw the wrong conclusions if you try to rely on information GS doesn’t have to give you. He thinks you’re stupid if you think GS
is giving you information that is in your best interests instead of
assuming you’re being manipulated. He will ride high until it is his turn
to be the stupid person because he can deal with being the smartest
person in a corrupt system.
Does anyone think we’d have a better system if people who believed ratings weren’t for that reason alone stupid? Or if people who believed that GS wouldn’t sell them a structured product that wasn’t right for them weren’t for that reason alone stupid?

Full Disclosure: I have a close relative who works for GS who makes infinitely more money than I do and I thoroughly enjoy the family reunions that money finances. As it happens we aren’t in
agreement about GS.

It’s hard to stay on topic because EVERY government agency is deepcaptured, from the SEC, to the DEA to the FDA to oh my god, the EPA was frolicing with the deep shore oil drillers.

Lobbiests can convince congress they make more money with less red tape, but that red tape is government regulation that protects you and me from the thieves. I say this as a fiscal conservative that hates big government and wants low taxes and constitutional law. I still want the government big enough and independent enough to arrest the criminals.

I want someone to make sure there isn’t cowsh’t on my burger and I want someone to make sure my shares actually exist. I know BP can save $ by not installing safety measures that are only needed every twenty years, but I don’t want to risk a tens of billion catastrophe at tax payer expense when BP is limited to a $75 million see ya.

Speaking of see ya’s, for a massive counterfeiting scam that netted them billions, our friends at the SEC fined Goldman Sachs $450,000. The fine was so pitifully small compared to the crime, I bet they ran it through the CEO’s corporate credit card and it was not his top expense for the month.

If you disagree with my criticism, maybe you support something similar for the police.

For every $1 million thieves steal, they plead “no contest” and provide a $10 fine and say “I’m sorry” and sign a document promising to never steal again.

If you want to really discourage crime, have it increase.

For the first million dollars, fine them ten dollars, for the second fine them $fifty dollars, etc. They will be so ashamed of the net profit piling up the fine will scare them straight.

Just like Milken’s see ya. He makes more money in a year than McDonald’s worldwide profit, serves a couple years in club golf course, than next thing you know his charity’s not a fan of Dendreon as it gets counterfeited up the wazoo.

This info needs to be spread far and wide until the average person knows ho to aim their seething anger at.

we neesd a lobbist for the small investor some one who understand who,what ,where ,when and why we are being fleeced.
Someone who WILL shout fraud to the world from the rooftops and call a corupt politician a crook to his/her face as well as in the public domain.
Hey Dr. Jim how much money would it take you to do this?
Are you interested?
Would this work?
If WE are all in for a few bucks it might work, we do outnumber THEM.
C,mon people we have to do something!

The remarks and comments by Dr. Jim DeCosta are worth a fortune for a highly advanced and sophisticated tutorial on this matter, and I cannot add anything to his brilliant dissertation.

But please allow me to simplify: in this so-called free market, which has never, ever been free, it is worth one’s attention to note who owns the market, and that would be the banking cartel and the oil cartel, which appeared to have merged over the years to form one cartel, which owns the InterContinental Exchange (ICE), ICE Futures, ICE Clear, etc., as well as the Climate Exchange, PLC, which in turn owns the various other insurance and climate exchanges worldwide, and the DTCC (majority owner), as well as almost any other exchange one can think of (also ELX Futures, SwapsWire, etc.).

They who own the market, call the shots. They who own the printing press, decide what gets into print.

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